NO ONE In Michigan Is Building Homes! - It’s no secret there’s a massive lack of homes out there to buy today in Michigan, and the common answer is, well, why don’t we just build more? National home construction is up 21%, but in Michigan, we are still trying to figure out what shoe goes on what foot, so hold onto your hard hats and stick around to find out why.
Rising real estate prices, inflated rents, multiple offer scenarios, bidding wars, over asking price offers. I’m sure a lot of this sounds familiar to you. Homebuyers are stretching themselves beyond thin these days just to get themselves into a home that was worth half that 5 years ago. The median sale price in the U.S jumped over $150,000 from the first quarter of 2020 to the fourth quarter of 2022, during low interest rates and a surprisingly strong economy throughout the pandemic. And as I have mentioned in every single one of my Michigan housing market videos is the issue with inventory. This housing market is sick and inventory is the cure. I don’t want to say this issue is new, we’ve needed new housing supply since the 2008 recession, but when covid rolled around and things were shut down, supplies were overly inflated and hard to get, there was a pause just brief enough to do some serious damage that still is an issue to present day.
Even though supply is a massive issue across the country, there are several U.S states that are moving quite a bit faster than others and at a local level, major metro areas are among the leaders in new home construction. In a recent report done by construction coverage which provides construction software and insurance reviews, analyzed data provided by the U.S census bureau and Zillow to rank states according to the number of new housing units per 1000 existing homes in 2022. This analysis found that there were 4.8 new housing units per 1,000 existing homes in Michigan. Which equated to a grand total of 21,983 new homes. Among all the U.S states, Michigan is building the 6th fewest homes relative to the number of existing homes. From 2020-2022 there was an 11.4% increase in housing authorized in Michigan, whereas in reference to the United states as a whole, there was a 13.2% increase, where the newer units per 1,000 existing homes sat at 11.7, which resulted in 1,665,088 new homes. Granted, Michigan came in with a lower median sale price of $235,361, whereas the U.S on average was at $348,853, which is all fine and dandy (if there were homes to actually buy).
In another article provided by the national association of homebuilders, national sales of newly constructed homes were up 12.2% in May from April and up 20% from just a year ago. Meanwhile, here in the mitten state, Michigan’s residential permit data indicated it’s 21% lower year over year, which totals only 5,022 single family home permits across Michigan.
With all that in mind, the question is why? Why is there such a lack of homes being built in Michigan, when the cure to this unbalanced market is inventory? The answer is as irritating as you’d might assume. The CEO of the homebuilders association of Michigan came forward to chat more about this, and the main complaint he hears on a daily basis from large and small builders alike is the low lot availability. And I know what you’re thinking, there’s vacant land EVERYwhere, and believe me I said the same thing until I researched further, and it came to be that the 50 to 150 lot communities that we so desperately need, are hung up on utility hook ups, environmental checks, and permit reviews. The CEO said that there’s AT LEAST 6 communities that come to mind that are caught in this holding pattern and it will go on for YEARS, not days, not months, but YEARS. After reading so many of these skewed headlines in the media today, it leaves everyone thinking why don’t these lazy builders get off their butt and do something? When in reality, it’s not their fault at all. They are building as fast as they can with the hurdles and restrictions getting thrown at them. The home builders association forecast shows new home permit activity normalizing for the remainder of the year with a decent rebound throughout the summer and fall, but I guess we will see! If that forecast holds true, there would be roughly 15,500 permits this calendar year, which would push Michigan back into the green, and represent a 6.8% increase over the total for 2022. You might be thinking, well that’s something, but according to Bob Filka, the CEO of Michigan’s builder association, we’d need to double that amount and then some to keep up with migration, aging housing stock and demographic shifts in the market. I’ve gotten a few comments on my videos over the years stating that I’m apart of the problem, persuading people to move to Michigan which increases population, and makes buyer demand higher and the supply issue worse, and to answer that, I don’t persuade anyone to move here, I educate the people who are already planning to move here, but thank you for your comment.
With all this information in mind, I’m over here like, Okay Michigan, put on your big boy pants and let the builders do what they do, and maybe I said that loud enough for the legislature to hear, who knows, but they have budgeted $5 million for 2024 to provide grants to local governments to work out these zoning issues, master plans, and other actions to actually help increase supply without the barriers. So if you squint really hard you can see the light at the end of the tunnel, it’s just going to be a slow process we need to be patient for, and who knows how many delays or how much time it would need to take during or after 2024 to actually put this stuff in action, but at least the ball is rolling and something is being done, because if nothing was by now, i’d have a few questions for the people sitting in those chairs.
Another thing the state legislature is focusing on is tax increment financing, which includes tax revenues captured from blighted properties, which are properties that are declared to be considered a public nuisance, or in layman's terms, down right yucky, and what this will do is help builders “make the math work” from what Filka said when dealing with high costs and supply chain delays.
I’ve chatted with several builders throughout the pandemic to present time and have heard the same thing filka mentioned to Mlive and that’s the delusion of the public based on horribly spread information by the media. People are so surprised to hear that most builders can’t make money on a home under $350,000, and that’s because the cost of supplies has gone off the charts as well as all the time and delays that take place before you can even break ground. However, the governor's administration has jumped into the boat with the Michigan development of housing authority to set a goal for 75,000 new and rehabilitated homes to enter the market over the course of 5 years, and while I was reading this, I thought it was all fine and dandy, but it’s still not fast enough and Filka said the same thing, that if the clock started right now, not only is that not enough inventory, they wouldn’t even meet that goal with how slow the process is going.
During this interview, you could tell the frustration building up with Bob Filka, because he talks about the local governments jus thawing their binders and operating behind the scenes and throwing delays on something that is crucial for the community, and unless something changes in those binders, there’s going to be continued hardship going forward. So I would be curious how this 2024 budget gets put in action and if we are taking steps in the right direction or getting delayed like the construction that needs to be happening.
It’s so easy to point fingers during this time in the housing market. I've done it myself, and the truth is it’s out of a lot of people’s control who have a hand in creating new inventory. So for those of you wondering why new homes are being built so slowly these days in the mitten state, this is the reason why.
For those of you that have watched all the way through, what are your thoughts about this situation? Drop your thoughts in the comments below.
If you’re looking to buy, build, invest or sell, please don't hesitate to reach out anytime and I would be happy to be a resource.
Cheers,
Andrew
Andrew McManamon is a Michigan REALTOR® with Signature Sotheby’s International Realty and provides real estate services to Buyers, Sellers and Investors throughout SE Michigan including Livingston County, Oakland County, Washtenaw County, Genesee County & beyond. Andrew has become one of the rising stars of Michigan real estate agents. Prior to his real estate career Andrew was responsible for managing a senior living facility in Brighton, Michigan as a dining supervisor and an activities assistant. Andrew’s passion to help people is unlike any other, and he continues to strive to be best resource he can be. Andrew graduated from Cleary University in Howell, Michigan with a double major and currently resides in Brighton, Michigan.